Exelixis, Inc. (EXEL) Earnings Call Transcript & Summary

Good morning, everyone. I'm Ken Shields, Vice President and Equity Research and part of the targeted oncology team at Leerink Partners. Welcome to our second day of the Leerink Global Biopharma Conference. Today, I have Exelixis with us. We have Andrew Peters, Senior Vice President of Strategy; Chris Senner, Executive Vice President and Chief Financial Officer. Welcome.

Thank you.

So yes, just to kick off, maybe we can start off with a brief overview of Exelixis, to help refresh those in the audience that may not be as familiar with the business.

Yes. And thanks for the invite to the conference. Glad to be here in Miami, certainly enjoying the weather. Before we start, I wanted to remind everyone we're going to be making forward-looking statements today, so please see relevant risks and disclosures in our SEC Filings. So Exelixis is a commercial stage biotech company focused in oncology, solid tumor oncology with our lead product, CABOMETYX, currently approved in RCC, HCC and a couple of other indications as well. And then behind that, we have a whole host of clinical and preclinical assets. For those either in the room or listening online, would really point you towards our R&D Day in December as well as JPMorgan this year, which I think provide a pretty good book end to kind of how we think about Exelixis, how we think about the business. First, on the R&D side, it was really a chance to -- for the first time in quite a while to really talk about our science and strategy. So as a company focused on solid tumor oncology, as I said before, but GI, GU, thoracic, lung, oncology, in particular, because those are the areas that really informed cabo development, and that cabo lens really is the through line for everything that we do at the company. So we have cabo, zanzalintinib, which is a next-gen VEGFR targeting TKI, which kind of takes that same cabo scaffold and improves upon really kind of the one key liability that cabo has, which is relatively long half-life. So zanza is currently in 3 pivotal studies in colorectal cancer, non-clear cell RCC and then head and neck cancer as well, and look forward to starting additional pivotal studies there. Behind that, we have XB002, that's a tissue factor targeting ADC. Again, kind of that cabo lens looking at how we can take a validated mechanism and improve upon it, differentiate on it to ultimately drive standard of care. So XB002, we think is differentiated both on the antibody side and the linker and warhead side looking at a target like tissue factor and saying how can we improve and expand upon. And then beyond that, XL309, that's what we think is a best-in-class USP1 inhibitor that we've recently brought into the company and then a whole host of preclinical programs across both the biologics and a small molecule portfolio. Then on the business side of things, cabo is going to do 1.675, 1.75 -- $1.65 billion $1.75 billion in revenue in 2024. And one of the things that we like to say as we run the business like a business and not a biotech, so we're profitable. We announced a second share buyback this year that's funded through the cash flows of the business and really making sure that we have -- we're doing everything to really grow the business long term, both from an investment in the portfolio investment in our early pipeline and then making sure we're appropriate kind of stewards of capital from a business perspective as well.

Okay. Yes. Great overview. Thanks. So just talking about cabo. Obviously, you guys had a strong year commercially. I believe it was $1.62 billion in the U.S., which was like a 16% increase year-over-year. What were -- and you put out the guidance, as you mentioned, which I think implies about 5% year-over-year growth at the midpoint. Can you talk about the factors affecting that 2024 guidance?

Yes. So let's talk about cabo '23 first, as you started with, right? So we did about $1.6 billion to $1 billion of revenue in the U.S. That was about a 16% growth, as we talked about. So a lot of what's driving that is the continued frontline RCC usage, and we grew our market share. If you compare '23 to '22, we grew our market share at around 39% from 38%. And it continues to be the #1 prescribed combination between cabo and nivo and RCC. So it's -- we continue to have growth in '23. As we looked at '24, what we've seen, and I think the market seen is that about 5 to 7 quarters out, a lot of time with indications plateau from a revenue perspective. And what we're seeing is we got approval for 9ER, which is the combination of cabo and nivo in January 2021, we're basically seeing that 12 quarters out. And we're seeing plateauing this year in revenue. So at the bottom end of the range, we're about 1% growth. Top end of the range, we're around 7% growth. But in the middle, it's around that 4% to 5%. So as we look forward beyond '24, we have the potential for 2 new indications both in prostate and NET and those will drive the revenue going forward.

Yes. Do you view those as contributing meaningful upside? How big of an impact do you think those indications can have?

Yes, we haven't given specific guidance around that, but we think there are meaningful market sizes. There are considerable addressable markets that we think can drive revenue -- meaningfully drive revenue starting in 2025. Yes. So if you look at both prostate and NET as examples, part of what drives our enthusiasm is the data. Kind of the lessons from 9ER for us is it's not just about the strong commercial organization that we have and P.J. and his team certainly do a phenomenal job, but it's also kind of the data driving the standard of care. And so an opportunity like NET, the cabinet data, which was presented last year at ESMO, certainly, I think caught a lot of people by surprise. And between the hazard ratios and the medians and all of the data there, and frankly, the unmet need in patients, I think it's probably something that a lot of investors under appreciate. And if you look at kind of market comps for other NET therapies, something like Lutathera in a slightly different patient population, there's a little more than $400 million in revenue in the U.S. And so looking at that sort of layering line as we look to submission and potential approval for cabinet, that's the sort of opportunity that we can get excited about. Similarly, presented the CONTACT-02 data at ASCO GU earlier this year. And again, we have the potential to, if approved, be the first IO-based regimen in prostate, and that's a patient population, roughly 70,000 men annually kind of in that indication. So certainly a very large market as well. So the data set between CONTACT-O2 and seeing that robust activity, not only in the overall population but in -- this was the first study in looking at patients with visceral disease or looking at subgroups with liver mets, that's the sort of data that I think gets people excited. So from an opportunity perspective, there's a real unmet need across both indications and actually reasonably sizable market opportunities.

Okay. And then obviously, one of the biggest overhangs right now is the litigation potential loss of exclusivity, can you just provide a brief overview of what's going on there? What could be next steps? And yes, how do you guys think about your patent estate...

Right. So I guess just from a summary perspective, we had MSN 1, which was a trial that happened in May of '22. It read out in January of '23, which upheld our composition of matter. Then we had MSN 2, which was the trial happened in October of '23. And at the end of the trial, Judge Andrews stated that we'll get a decision -- he'll provide his decision in the spring of 2024. And so we're in that spring time frame. So we're waiting for that, but we're very confident in our position of winning the trial.

Okay. So maybe we can just start talking about zanza then. I mean that's certainly exciting. You mentioned a little bit about its PK differentiation versus cabo. How do you think about this assay generally in terms of strategy? I mean, worst-case scenario, cabo goes against you. Could this fill that hole? How do you view it from a strategy perspective?

Yes. So taking a little bit of a step back, one of the things that I spent a lot of my time on at Exelixis is looking externally as well kind of from a BD external innovation perspective. And one of the things that strikes me often about looking internally about zanza in particular, is we tend to view it as one of kind of the more derisked assets, I think, in oncology, and it's probably underappreciated because it really builds upon that wealth of information and knowledge that we've built from cabo. So if you think about kind of the evolution of the VEGFR targeting TKIs, you kind of had the first-gen agents, very effective, but some very known in hindsight, I guess, liabilities, and that's really kind of where the second-gen programs like cabo came in, where it's not just targeting VEGF, but things like MET, AXL. The TAM kinases which really provide kind of that improved efficacy relative to, say, just the straight VEGFR targeting agents. And so as I mentioned before, one of the challenges from a patient management perspective, from a combination perspective for cabo is it's long half-life. It's about a half-life of around 4 days. And so what that can translate to is an accumulation in plasma of around 10 to 14 days. And so all patients ultimately develop adverse events on VEGF-TKIs. And so from a dose reduction, dose-hold perspective, there are certainly complications for an agent like cabo that has a long half-life, whether it kind of dose holds, dose reduction, dose continuations, especially in combination, it can present challenges. These challenges are obviously able to be overcome, looking at something like the 9ER data, cabo/nivo is the #1 TKI, RCC as an example. But when we set out to kind of improve upon cabo that honing in on that half-life was one of the things that we really looked at. And so what we were able to do and kind of -- I'm always in [ eye ] of our discovery and chemistry team that they were able to do this is to take kind of the core cabo scaffold in engineering and metabolic liability that allows the molecule to essentially phenocopy the kinase inhibition profile of cabo, all of that activity, which drives the efficacy but improve upon and actually shorten down the half-life from around 4 days to a little under 24 hours. And so the data that we've presented so far would certainly suggest that we were successful with at all the kind of the PK data. But from an efficacy perspective, we presented at the IKCS conference last year, data in both -- in RCC and both the cabo naive and a cabo experience population. And there, we're seeing activity across both, which has driven a lot of our excitement and frankly, driven a lot of investigator enthusiasm but also what seems to be emerging as a potentially differentiated tolerability profile. Unsurprisingly, when the PK changes, you see things like differentiated tissue distribution and how that plays out across some of the kind of the core VEGFR-related AEs like hand-foot syndrome or PPE, that's the sort of profile that's starting to emerge. So with zanza, we were able to look at all of the data that we've been -- that has been generated historically with cabo and use that as somewhat of a guidepost on development going forward. So if you look at the 3 studies that we've initiated for zanza, first 303 in third-line colorectal cancer, 304 in non-clear cell RCC and then now 305 in frontline head and neck cancer. A lot of that uses the cabo data sets that we've been able to generate and say, okay, can a zanza like profile, can it be effective there and really improve upon some of the prior cabo data sets? So 303, that's a study that we're up and enrolling comparing against regorafenib in the population, certainly excited about that, clear unmet need, large market opportunity. And the data from cabo would certainly be suggestive of a potential for a strong study there. And then similarly, with 304 and 305, we can look at that cabo data as well as data from other competitors of similar molecules to really help us shape and drive both from a protocol design perspective, but also from a probability of success perspective as well.

Yes. We've been doing a lot of work on the head and neck space, and I believe you guys actually had a pretty recent update at ASTRO for cabo. And then can we talk about how that could read through to STELLAR-305? And what was shown at ASTRO and your thoughts on that program?

Yes. So again, that's an example of kind of using a cabo data set to help inform and shape how we think about zanza going forward. So 305 is really built on the foundation of some cabo plus pembro data that have been presented over the last several years, again, as you mentioned most recently at the ASTRO conference. So that, I think, had a 53% -- 52%, 53% response rate, very long PFS in admittedly a relatively small population. And so that's why you take early signals and run pivotal studies, because ultimately, that's what it's about. But it's comparing and contrasting that cabo/pembro data versus pembro monotherapy either from their pivotal studies or even recently from the LEAP-010 study, which was a lenvatinib plus pembro study. And so when we look across our data set of cabo/pembro prior data from pembro monotherapy and then even the len/pem certainly drives our interest and our enthusiasm in the space. One of the things that we've really started to think about is head and neck is really an unmet need. Obviously, the comparisons are different, but conceptually, we've often highlighted head and neck could be like where RCC was 10 years ago, where really the standard of care hasn't evolved in a long time. And we've certainly played a role in kind of evolving that standard of care, helping patients live longer, better lives in RCC. And that's kind of grown the market from a revenue opportunity. Similarly, the epidemiology around head and neck is similar-ish to RCC, but as standard of care haven't really changed, kind of that hasn't translated to a market opportunity. So we think 305 and the study we're running there has the potential to really impact patients and drive kind of that next revenue opportunity for zanza.

Yes. I mean I think there was some concern, you mentioned the LEAP-010 study, the pembro arm potentially outperformed or maybe it's more difficult to beat in a Phase III setting. I mean, obviously, it was Lenvima, it's known to be toxic. Could you maybe talk about how the zanza approach would be different from that and...

Yes. So that was a really interesting data set to -- especially there's a lot of data around durability of response. And it was for the first time -- not the first time, but I haven't seen it in a while, where actually kind of the duration curve flip. And it really just shows that consistent with a lot of the other len/pem pivotal trials across melanoma or even colorectal cancer, that's a really hard combination to give. And so unsurprisingly, when a lot of that early toxicity drives discontinuations either from len or the combination, you see kind of unsurprising effects on something like overall survival. So you can look at that data set and say, okay, is the early response rates or PFS wins not translating to survival because of something specific to that population or is it related to a lot of that high toxicity that patients are seeing originally. And then layer in our excitement and enthusiasm around zanza, where we think not only does it have a best-in-class efficacy profile building upon all of the cabo data that we have. But does that shorter half-life have the potential to translate into an improved tolerability profile where patients can actually stay on drug, dose reduce, dose hold, manage better and can that translate to the signal. The other thing is we're being reasonably proactive about 305. So it's a Phase II/III trial design actually. So it gives us an opportunity from a Phase II/III gate perspective to really ask a lot of those hard questions is, is this hypothesis around improvements around zanza translating into the clinical data. And so it's something that I think we built into that study to help us get even more comfortable about all of those dynamics that I just talked about.

Okay. And then how do you view the competitive landscape? Obviously, there's some EGFR antibody, CPI combinations. Those are some upcoming data sets people are excited about. What gives you conviction that the TKI plus pembro approach is potentially the best approach?

Yes. I mean it's something that we, I don't want to say joke about a lot, but kind of a statement of the obvious is oncology is competitive. It's always been competitive. We have a lot of history here with cabo, especially. There was this idea of how is the TKI compete with IO and RCC. And ultimately, what we've learned and what we've been able to execute on is it all comes down to the data. And so I look at the IO, TKI data that we've presented with cabo/pembro. And I look at all of the kind of differentiating or potentially differentiating data that we've generated with zanza in other indications as kind of this mosaic of data to suggest why we're enthusiastic about 305 and why we think an IO, TKI certainly has potential in the setting, but ultimately, it's going to come down to the data. So oncology is competitive, but we feel like our approach has yielded some very strong data to really support.

Okay. So maybe we can transition to ADCs, I think you guys are probably a little underappreciated in the development of your ADC platform. And can you talk about how it's been built over time? And what are its competitive strengths and novel interest?

Yes. So kind of, again, taking a little bit of a step back for those in the audience who aren't as familiar with the company. So starting around in 2018 or so, we had the potential to essentially restart or we had the opportunity to essentially restart our discovery effort. Prior to 2018, we had to make kind of the tough choice to either continue to fund our RCC development program or kind of our early discovery effort. We made the decision to fund the METEOR study that ended up being successful. Cabo launched and we were able to then use kind of financial tailwind from the cabo launch to restart discovery. What that allowed us to do is kind of to take a step back and say, okay, where is the oncology world going, what are the modalities, what are the indications that we think we have the potential to generate real differentiation, generate real value, that sort of thing. And so one of the areas beyond our history, expertise and capabilities in small molecule chemistry is the ADC landscape. Within ADCs, certainly, there are a lot of platforms out there that allow you to do a lot of new and creative and interesting things. But we actually took the approach that a lot of times with platforms, you tend to run into kind of a square peg round hole issue, where if you have a platform, every target, every asset you look at you kind of try and jam in whatever modality or whatever technology you have. What we've been able to do over the last several years is really bring together a network of different technology collaborators that allow us to empirically look at, okay, for this particular target, we think this sort of binder antibody bispecific whatever pairs best with this linker in this warhead. And so internally, we generate a lot of those iterative compounds to see, okay, is this the best one here? Is this the best one here? Is this the best one here? Site-specific conjugation, higher potency warhead, lower potency warhead, high-DAR, low-DAR, high affinity binder, low affinity binder. All of those things are the sorts of questions we ask when we're developing it. So XB002, our clinical tissue factor ADC, is a really good example of that. So it asks the question of for tissue factor, which is a really attractive target, to express in a wide range of tumor types. But it often can be challenging from a TI perspective, where the existing kind of predicate molecule, TIVDAK from Seagen, now Pfizer, has challenges with its binder, where it's competitive with factor VII, impacts its role in the coagulation cascade and so on, surprisingly see some bleeding events. Similarly, kind of that earlier gen ADC profile with the linker warhead, you tend to see a lot of free MMAE. And then the question is, is that free MMAE what's driving neuropathy, neutropenia, some of the cytopenias that can often be dose limiting. And so what XB002 does is it takes kind of a different approach on the binder side where the antibody is actually noncompetitive with factor VII. So we wouldn't expect to see that same bleed. And then on the linker warhead side, it incorporates the Zymelink modified or statin, which is much more stable. And so a lot of the data that we've presented so far just from a kind of pharmacology 101 perspective at equivalent doses, we see about twice the exposure on an AUC perspective and then about 1/10 the amount of free drug. And so we're developing XB002 to really move into expansion cohorts and sensitive tumor types known to express tissue factor and really ask the question, does the differentiation across each of those components of the ADC translate to a benefit clinically. So that's the data that we see.

Okay. And then Tivdak, obviously, has some issues with ocular toxicity. Have you guys seen any of that with your platform? And what do you think is driving that?

Yes. So ocular toxicity in the ADCs is probably one of the most talked about and complicated dynamics. Just it's not something specific to tissue factor, a lot of other ADCs, whether they're [ Val-Cit ], MMAEs or others, it's something that there are a lot of hypotheses as to what's causing it. Certainly, tissue factor expression in eye potentially could play a role, certainly just the underlying properties, all ADCs could play a role as well. So it's something that we're obviously monitoring in our clinical trials with XB002, but ultimately, it's going to be about kind of the totality and the balance of that safety, efficacy, tolerability data that's going to determine how we move forward.

Okay. And is there anything else exciting that you're excited about out of the ADC platform? Is there XB371?

Yes. So I guess when we think about XB002 or we probably more refer to as our tissue factor franchise. And what I mean by that is, as I mentioned before, so tissue factor is broadly expressed across a wide range of tumor types. XB002 is a modified auristatin. There are a lot of tumor types actually that are highly expressed tissue factor, but historically are pretty insensitive to auristatin-based chemotherapies. 371 is taking that same antibody, the noncompetitive factor VII antibody and links it to a topoisomerase warhead. So you can look at things like colorectal cancer, which high tissue factor expression, not sensitive to auristatin, especially sensitive to a topo warhead and kind of pair those together. So we can look at kind of that heat map of expression and chemosensitivity and really help guide a lot of our clinical development there. And 371 uses a different linker technology as well, that, again, we think is differentiated because it actually requires 2 separate cleavage steps. So it's much more stable. And so you don't see a lot of that free warhead related to adverse events theoretically. Similarly, XB010 takes that same approach of kind of empiric ADC generation around 5T4. It's a target binding properties necessary there and then kind of the stability and potency of the warhead. So I think you mentioned it before, kind of we're probably an underappreciated ADC company. It's an area that we've spent a lot of time, a lot of thought, a lot of effort to really build that capability. And as we outlined at the R&D Day in December, it's something that we're excited to talk more and more and more about as those programs enter the clinic.

Yes. Well, hopefully, we can get beyond the cabo IP stuff and Street can start giving you credit for all the innovation you guys are doing. So the USP1 inhibitor, that's kind of an emerging class. We cover Tango who has one. And then KSQ, we did a deal with Roche, can you talk about your USP1 inhibitor and that opportunity?

Yes. So I guess just in the last minute or so here, it's an area we think is really interesting, the target itself, the potential for either deepening and lengthening responses on top in combination with the PARPs, USP1 is a really interesting target. And what Dana talked about at our R&D Day, and I encourage everyone again either in the room or online to kind of go back there because we actually showed a lot of kind of side-by-side comparisons between the programs, really show why we think it's a best-in-class program, both from a kind of potency pharmacology perspective but also a lot of the drug-like properties around it, which we think ultimately matter as they translate to clinical data. So certainly one we're excited about. It's up and running in the clinic, and we think has the potential to be a best-in-class there, so.

Okay. Awesome. I think we're running up on time. So thanks for the time and I hope you guys enjoy my end. Thank you.

Thank you.